Opinion
Granger & Moe, and Lewis A. Moe, Delano, for appellant.
Young, Wooldridge, Paulden & Self, Robert J. Self and John B. Young, Bakersfield, for respondents.
CONLEY, Presiding Justice.
The plaintiffs, Walter M. Keene and Ellen R. Keene, his wife, sued the defendants, Fred Harling and Morris Blum, for the balance due on a promissory note given to the plaintiffs by Fred Harling for the purchase of a coin-machine business in the City of Taft and vicinity through a conditional sales contract. Morris Blum became a partner of Fred Harling shortly after the sale; he had cooperated with Mr. Harling in negotiating for the acquisition of the business, and he later bought the going concern from Mr. Harling, assuming all of the obligations of the dissolved partnership, including the balance due on the promissory note.
A cross-complaint was filed by Mr. Harling against Mr. Blum. The judgment was in favor of the plaintiffs against both defendants for the sum of $27,900 as the full unpaid balance on the note, after a deduction of an item of $4,600 as the value of included illegal slot machines, together with interest, and for $500 attorney's fees and costs; on the cross-complaint, Mr. Harling was awarded judgment against Mr. Blum in the same amount, except that no attorney's fees were included. Defendant and crossdefendant, Morris Blum, did not appeal.
On September 1, 1955, a written contract was entered into by plaintiffs and Fred Harling for the sale to him of the coin-machine business, which had been conducted for many years by Mr. Keene and his wife. The sellers agreed to sell and the purchaser to buy '* * * that certain business presently operated under the name of Kenomatic' with its headquarters in Taft, '* * * said business consisting of coinoperated machines and equipment, counting machines, shop equipment and office furniture, and presently established locations and routes particularly described in the inventory' The contract contained the further provision:
'In the event that the County Authorities determine that 'bingo-type games' are inoperable or illegal, monthly payments on the purchase price hereinbefore stipulated shall be reduced in the sum of One Hundred Fifty Dollars ($150.00) per month, but all other provisions of this agreement shall remain in full force and effect.'
The contract also contained a stipulation for attorney's fees in case a suit was required.
The trial court found that among the items of personal property described in the contract, there were certain bingo-type pin ball machines which were predominantly games of chance and illegal and that the reasonable market value of such machines was $4,600. The court also found:
'(c) That the promise of defendant Fred Harling in said Conditional Sales Agreement to pay the purchase price of $50,000.00, and perform the other terms therein, was not induced by the sale of the bingo-type machines thereunder and said machines were not an integral part of the consideration received by defendant Fred Harling.
'(d) That the promise of defendant Morris Blum in the 'Dissolution of Partnership', dated May 17, 1956, to assume and hold defendant Fred Harling harmless from liability under said Conditional Sales Agreement, was not induced by the sale or transfer of any bingo-type machines under the said Dissolution Agreement and said machines As conclusions of law, the court determined:
'1. That defendant Fred Harling unjustifiably breached his obligation to plaintiffs to pay the purchase price under said 'Conditional Sales Agreement of Personal Property.'
'2. That plaintiffs are third party beneficiaries of the 'Dissolution of Partnership' between defendant Fred Harling and defendant Morris Blum, dated May 17, 1956, wherein defendant Morris Blum agreed to assume and hold defendant Fred Harling harmless from the liability existing under said Conditional Sales Agreement; that defendant Morris Blum unjustifiably breached his duties to plaintiffs and defendant Fred Harling under said Dissolution Agreement.
'3. That the sale of said bingo-type machines was in violation of Penal Code Section 330b.
'4. That said 'Conditional Sales Agreement of Personal Property' is a proper subject for application of the doctrine of contract severability and by reason thereof the principal sum due plaintiffs is reduced $4,600.00.
'5. That plaintiffs have judgment against defendant Fred Harling and defendant Morris Blum for the sum of $27,900.00, together with interest on said sum at the rate of six (6%) percent per annum, from January 2, 1958, until judgment is entered herein, together with costs of suit herein, * * *'
'6. That defendant Fred Harling have judgment against defendant Morris Blum for the sum of $27,900.00, together with interest on said sum at the rate of six (6) percent per annum, from January 20, 1958, until judgment is entered herein, together with costs, * * *'
The testimony of Morris Blum, which, of course, was not binding upon the other parties, was that in his opinion the value of the various items included in the sale was as follows:
(1) Market Values PHYSICAL ASSETS Sept. 1955 ---------------------------- ------------- Bingo Machines $4,600.00 Phonograph Machines 7,000.00 Scales 300.00 Candy and Cigarette Machines 6,268.00 Automobiles 800.00 Office Equipment 3,000.00 ------------- Total Physical Assets: $21,968.00 (2) GOOD WILL AND INTANGIBLE ---------------------------- PROPERTY ---------------------------- CALLED "BLUE SKY" $28,032.00 ---------------------------- Total Value: $50,000.00
Mr. Blum also testified that, while the reasonable market value of the bingo-type machines themselves was only $4,600 as physical assets, they accounted for approximately seventy per cent of the revenue of the entire business both before and after the sale to appellant.
The trial court was of the opinion that, in view of the terms of the contract and the many articles of personal property most of which, if considered separately, were not illegal, the doctrine of severability or divisibility of the contract would apply; and that, after deducting the reasonable market value of the illegal bingo-type machines, the balance of the note should be hled due from Mr. Harling to the plaintiffs, and because of the later assumption by Mr. Blum of the indebtedness, the contract should be enforced against both defendants and also that Mr. Blum should be held responsible to Mr. Harling for the amount of the judgment obtained against him by the plaintiffs.
The evidence shows that the illegal machines were operated by the Keenes before the sale, and by the defendants afterwards until seized by law enforcement officers. There was no finding as to whether the parties were in pari delicto, but under the evidence none can claim innocence; Mr. Keene had operated this business for approximately 15 years, and Mr. Harling was currently engaged in the same type of operation at Delano in Kern County. Appellants claim that the judgment is contrary to law, that the contract between the Keenes and Harling is void as an essential part of the consideration involves the direct breach of an express penal statute passed for the benefit of the public, that the agreement is an integrated whole, and that the court's finding that the contract is divisible is without support in the evidence.
The following provisions of the Civil Code are applicable:
'The consideration of a contract must be lawful within the meaning of Section 1667.' (Civ.Code, § 1607.)
'That is not lawful which is: 1. Contrary to an express provision of law; 2. Contrary to the policy of express law, though not expressly prohibited; * * *' (Civ.Code, § 1667.)
'If any part of a single consideration for one or more objects, or of several considerations for a single object, is unlawful, the entire contract is void.' (Civ.Code, § 1608.)
'It is essential to the existence of a contract that there should be: * * * 3. A lawful object; * * *' (Civ.Code, § 1550.)
In 1950, approximately five years before the execution of the contract, the legislature enacted Section 330b of the Penal Code. It reads in part as follows:
'(1) Unlawful acts: * * * It is unlawful for any person to manufacture, repair, own, store, possess, sell, rent, lease, let on shares, lend or give away, transport, or expose for sale or lease, or to offer to repair, sell, rent, lease, let on shares, lend or give away, or to permit the operation of, or for any person to permit to be placed, maintained or kept in any place, room, space or building owned, leased or occupied by him or under his management or control, any slot machine or device as hereinafter defined, or to make or to permit to be made with any person any agreement with reference to any slot machine or device, as hereinafter defined, pursuant to which the user thereof, as a result of any element of hazard or chance or other outcome unpredictable by him, may become entitled to receive any money, credit, allowance, or thing of value or additional chance or right to use such slot machine or device, or to receive any check, slug, token or memorandum entitling the holder to receive any money, credit, allowance or thing of value; * * *
'(2) Definition of slot machine. Any machine, apparatus or device is a slot machine or device within the provisions of this section if it is one that is adapted, or may readily be converted into one that is adapted, for use in such a way that, as a result of the insertion of any piece of money or coin or other object, or by any other means, such machine or device is caused to operate or may be operated, and by reason of any element of hazard or chance or of other outcome of such operation unpredictable by him, the user may receive or become entitled to receive any piece of money, credit, allowance or thing of value or additional chance or right to use such slot machine or device, or any check, slug, token or memorandum, whether of value or otherwise, which may be exchanged for any money, credit, allowance or thing of value, or which may be given in trade, irrespective of whether it may, apart from any element of hazard or chance or unpredictable outcome of such operation, also sell, deliver or present some merchandise, indication of weight, entertainment or other thing of value.
'(3) Misdemeanor. Every person who violates this section is guilty of a misdemeanor.'
The Penal Code contains a number of other sections relative to gaming through the use of slot machines passed in the same year. Section 330.1 of the Penal Code, one of these enactments, provides in part:
'Every person who * * * owns, stores, keeps, possesses, sells, rents, Section 330.5 of the Penal Code makes it clear that the prohibition of slot machines does not apply to music machines, weighing machines, or mechanical contrivances which vend cigarettes, candy, ice cream, food, confections, or other similar products, and which are so constructed and used as to return valuable merchandise for the exact consideration in coin inserted in the machines. In the same section of the code, it is made equally clear that the prohibitions relative to slot machines do not apply to any '* * * pin ball, and other amusement machines or devices which are predominantly games of skill, whether affording the opportunity of additional chances or free plays or not, * * *'
There was evidence that approximately 20 of the machines delivered pursuant to the contract were in fact illegal mechanisms, falling under the foregoing statutory description of slot machines.
In Teachout v. Bogy, 175 Cal. 481, 486, 166 P. 319, 321, the plaintiff sued to recover monies alleged to be due by reason of a contract under which the defendant agreed to conduct a saloon, acquired the assignment of a lease of the premises in which the business was to be carried on and took title to certain personal property. The defendant did not have a liquor license, and the court held that as this was a violation of law, and the consideration was consequently partially illegal, there could be no recovery of sums otherwise due under the contract. In the opinion it is said:
'The effect of these principles [previously discussed] is thus summarized by the author of the article on Contracts in the Cyclopedia of Law and Procedure: 'If any part of a single consideration for one or more promises be illegal, or if there are several considerations for one promise, some of which are legal and others illegal, the promise is wholly void, as it is impossible to say which part or which one of the considerations induced the promise. Thus, if the consideration for a note or other promise to pay a certain sum 'The present case comes clearly within the rule. The promise was to pay $16,500 for the lease and the license. The consideration consisted of several things, one of which, the agreement to transfer the license, contemplating as it did the carrying on of the saloon business by Bogy Bros. without any other license, was illegal. The contract was, therefore, contrary to an express provision of law and contrary to the policy of express law as defined in section 1667. It had for one of its principal objects, indirectly, if not directly, the violation of law by defendants, and therefore it was, by section 1668, 'against the policy of the law.' The consideration was unlawful, under sections 1607 and 1667; and, as a part of the consideration was unlawful, 'the entire contract was void,' as provided in section 1608.'
In Loving & Evans v. Blick, 33 Cal.2d 603, 607, 204 P.2d 23, 25, the supreme court says:
'* * *, it has been repeatedly declared in this state that 'a contract made contrary to the terms of a law designed for the protection of the public and prescribing a penalty for the violation thereof is illegal and void, and no action may be brought to enforce such contract.''
Again, in Tiedje v. Aluminum Taper Milling Co., 46 Cal.2d 450, at pages 453-454, 296 P.2d 554, at page 556, it is said:
'Ordinarily, a party to an illegal contract can neither recover damages for breach nor, by rescinding, recover the performance that he has rendered or its value. Owens v. Haslett, 98 Cal.App.2d 829, 833, 221 P.2d 252; Fong v. Miller, 105 Cal.App.2d 411, 413, 233 P.2d 606. A contract made contrary to public policy or against the express mandate of a statute may not serve as the foundation of any action, either in law or in equity, Hooper v. Barranti, 81 Cal.App.2d 570, 574, 184 P.2d 688, and the parties will be left, therefore, where they are found when they come to a court for relief. Brooks v. Brooks, 63 Cal.App.2d 671, 676, 147 P.2d 417. These principles are not applied to secure justice between the parties, but from regard for a higher interest--that of the public, whose welfare demands that certain transactions be discouraged. Franklin v. Nat. C. Goldstone Agency, 33 Cal.2d 628, 632, 204 P.2d 37.'
The general rule with regard to the effect of illegality of contracts is thus well stated in 12 American Jurisprudence, Contracts, Section 209, pp. 713-716, as follows:
'The maxims 'ex turpi causa non oritur actio' and 'ex dolo malo non oritur actio,' founded as they are on sound morals, have for a long time been applied by courts in the practical administration of justice. Under the doctrine expressed in these maxims, it has been said that no court will allow itself to be made the instrument of enforcing obligations alleged to arise out of an agreement or transaction which is illegal. In other words, no action can be based on an illegal agreement. The rule rests upon the broad ground that no court will allow itself to be used when its judgment will consummate an act forbidden by law. It has its foundation in the policy of discouraging illegal and corrupt agreements by refusing all judicial aid to the parties to them. This rule applies to any agreement which is illegal, immoral, or against public policy or prohibited by public law, and to any agreement which has for its purpose the commission of a crime or is forbidden by statute. Such agreements cannot be enforced by one party against the other, either directly by asking the court to carry them into effect or indirectly by claiming damages or compensation for (See also Levinson v. Boas, 150 Cal. 185, 193, 88 P. 825, 12 L.R.A.,N.S., 575; County of Shasta v. Moody, 90 Cal.App. 519, 523, 265 P. 1032; Haas v. Greenwald 196 Cal. 236, 247, 237 P. 38, 59 A.L.R. 1493; Wise v. Radis, 74 Cal.App. 765, 774, 242 P. 90; Holm v. Bramwell, 20 Cal.App.2d 332, 335-337, 67 P.2d 114; Rest., Contracts, § 580, pp. 1087-1090; 12 Am.Jur., Contracts, § 151, pp. 645-646; 17 C.J.S. Contracts § 191, pp. 984-986.)
There can be no question, therefore, that unless the plaintiffs can bring themselves under some exception to, or qualification of, the general rule, they have no right to a recovery in this action.
As already stated, the trial court made a finding that the promise of Fred Harling in said conditional sales agreement to pay the purchase price of $50,000 'and perform the other terms therein, was not induced by the sale of the bingo-type machines thereunder and said machines were not an integral part of the consideration received by defendant Fred Harling.'
It is impossible to see how the court arrived at this conclusion. It seems to us to be directly contrary to the evidence in the case. The parties did not place any separate valuation in the contract or in the inventory on any of the items set forth. There was no breakdown in any way of the $50,000 consideration for the total sale. There was no provision that each of the items of personal property, many of which considered separately were legitimate items of trade, had any agreed value or that the parties contracted to sell and buy separately any of such articles. The contract in form was a single contract embodied in a single instrument for the purchase of a single business for a lump sum. There was no evidence that indicated that any part of the business was distinct or separable from any other part. The whole business, with all of the items of personal property, including the slot machines which were specifically made illegal by law, was considered as a unit. How, then, can one indulge in any effective theory of severability or divisibility? As is said in Williston on Contracts, 'If payment of a lump sum is to be made for several articles, the contract is necessarily indivisible.' (6 Williston on Contracts, (3rd. ed.), § 862, p. 272.)
(See also Bartholomae Oil Corp. v. Oregon Oil, etc. Co., 106 Cal.App. 57, 64, 288 P. 814; Simmons v. California Institute of Technology, 34 Cal.2d 264, 275, 209 P.2d 581; Bullard v. Eames, 219 Mass. 49, 106 N.E. 584; Petersburg Fire Brick & Tile Co. v. American Clay M. Co., 89 Ohio St. 365, 106 N.E. 33; Pettigrove v. Corvallis Lumber Mfg. Co., 143 Or. 33, 21 P.2d 198; Buckeye Buggy Co. v. Montana Stables, 43 Wash. 49, 85 P. 1077; 17A. C.J.S. Contracts § 334, pp. 311-313.)
Equally untenable is the finding of fact quoted above to the effect that the promise to pay the purchase price was not induced in part by the sale of the bingo-type machines. This is at odds with the finding of fact already quoted that the bingo-type machines were of the value of $4,600. How can the two findings co-exist? Furthermore, the contract provided that if the slot machines were found to be illegal, the monthly payments would be reduced. How is this conformable with a finding that the illegal machines were not an inducement for the sale? Respondents' argument that the provision of the contract that if any of the machines sold are found to be illegal, monthly payments would be lessened but the contract terms otherwise enforced, is equivalent to an agreement that such machines were not part of the consideration. We can not accept this strained and unrealistic argument. In our view, that provision The findings which permit the plaintiffs to avoid the effect of the illegality of consideration are not supported by, but are contrary to, the evidence. The courts will not enforce an illegal contract; the law leaves the parties where it finds them. (Tiedje v. Aluminum Taper Milling Co., supra, 46 Cal.2d 450, 454, 296 P.2d 554; Brooks v. Brooks, 63 Cal.App.2d 671, 676, 147 P.2d 417.)
That portion of the judgment from which the defendant appeals is reversed.
RALPH M. BROWN and STONE, JJ., concur.